ACH Processing

In today's hectic world, there is a lot of pressure to do things quickly, which means that electronic payments really do come in handy. Most people love to pay for things electronically, using debit or credit cards, money transfers, or e-cash systems like PayPal. Writing paper checks for payment is seen as old and archaic by many, and too time consuming and costly. Why leave such a paper trail when everything can just be tracked electronically? Despite the resistance, some people still prefer checks, so there are now ways that you can pay for things with a check electronically, called an e-check. The system used to process electronic payments is called ACH.

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What is ACH?
As already noted, ACH is the system used to process electronic payments such as electronic checks and bank account debits. The initials ACH stand for Automated Clearing House. The ACH system is only used in the United States and Puerto Rico. All other countries have similar systems, but they are named something different and are of course on different servers. Though the ultimate goal is to have the whole world on one uniform system (or at least ones that can interact well together), there are a lot of logistics problems with this.

ACH has a lot of advantages for certain businesses. Not only does it secure a payment much faster than a paper check, it does so with far less fees as well. Though credit cards and debit cards (or of course cold hard cash) are truly the quickest ways to pay, there are quite a few advantages to using ACH over them as well. We will get into those advantages in the next section.

It is also noteworthy, before we move on, to say that ACH is often used interchangeably with EFT, or Electronic Funds Transfer. Though they are similar in that money changes hands electronically, an EFT is generally done with a machine such as an ATM machine, or with the debit card payment machines you swipe your card through at a retail register.

Advantages of ACH
ACH check processing is much easier than a paper check, which is perhaps the biggest advantage of one over the other. Not only does it take less time to process, but you also need far less manpower to process an ACH electronic check. Imagine if your business took nothing but paper checks – you would need either extra employees to sift through and account for them, or keep those employees longer (and risk costly overtime payments) in order for them to handle the paper checks in addition to whatever their regular duties may be.

There is also the cost of postage and/or mileage when dealing with paper checks. You will need to pay an employee to go and deposit the checks into your bank account, then wait for them to clear, or pay for them to be mailed to your financial institution. Both of these can be costly when added up.

There is also the cost and time it takes when a check is returned. If a check is returned, it could mean that you would overdraw your account and end up costing you more money than expected. Another great advantage of ACH electronic check processing is that you don't have to worry about counterfeit checks or forged signatures like you would with a traditional paper check.

ACH Bounced Checks
Even though ACH electronic checks are processed electronically, it does not mean that some of the same risks involved with traditional paper checks don't still remain. The biggest of these risks is the possibility of bounced checks. Even if you run a check or payment electronically, this does not mean the money comes out automatically, like with an EFT (which is another reason the two acronyms are not always interchangeable).

With an ACH transaction, the money can still be in the account for 2-3 days, with the fourth or sometimes even fifth day being the one where the money will actually transfer from the customer's account to yours. Of course, the money will transfer from one account to the other as long as there are sufficient funds. If there are not sufficient funds after the processing period takes place, your ACH electronic check will promptly become a bounced check.

Check Processing ACH Re-Presentment
If you use an electronic check processing service to accept ACH payments and one of your electronic checks bounces, you do have some recourse. The most common thing for a business to do if an electronic check bounces is to wait a few days and run it through again. This is called ACH re-presentment.

Since the customer in good faith (we hope) agreed to pay you electronically, you don't get just one crack at it. If the check processing company returns an electronic check due to NSF (non-sufficient funds), you can run the check through one time or more. Of course, there are fees involved when a check is returned and goes through ACH re-presentment, so it is a good idea generally to contact the customer and seek out another form of payment at some point. You won’t have unlimited chances to process the payment, so ask your check processing service what other recourse is available to you. Most want to help you recoup your funds and can advise you of the best steps to take in order to get paid.

How Long Does it Take to Use ACH?
Setting up the ACH transfer of funds from a customer's account to yours does not take very long at all. The longest part of any check processing service is waiting for confirmation that the funds are indeed available and that they have transferred to your account. As previously stated, this can take anywhere from 2-4 days, with the actual transfer and confirmation coming on the final day. In rare cases, the transfer of funds could take a little longer than four days. This happens if there is a holiday involving one of those days, particularly if it is around Christmas, which is one of the busiest times of year for any type of transaction.

You should also remember that when we say that items are taken care of within two to four days, we mean business days. This does not include Saturdays or Sundays, even if your particular financial institution (or that of your client) actually has working hours on either or both of those days. Whether your bank is open or not, business days means Monday through Friday and do not include weekends, national, or bank holidays.

The Cost of Doing Business with ACH Check Processing
Like everything else in life, using ACH is not free. It would be nice if it were, but since it isn't, if you are thinking of using this as a form of payment for your customers in the future, you need to know the cost.

There is no exact fee that we can give you for the cost of using ACH electronic check processing. This is because the companies that can set you up with an account to do such transactions do not have fixed fees, either. Each one differs in how much they charge and to whom.

How much your electronic check processing service charges you per transaction largely depends on what kind of account you have with them and how frequently you use the service. Almost all services will give you some kind of discount for bulk usage. This means larger companies who process a lot of payments will give you a lower per-transaction fee than someone in a smaller business who does not use it as much.

It is also important to remember that the cost is per transaction, not per electronic check. This means that using ACH to re-present bounced checks will cost you a separate fee each time, which is yet another reason that trying to contact the customer who gave you a bounced check to get an alternate form of payment may not be such a bad idea.

Using ACH with International Customers
Though it would be really nice to have one universal ACH system where all customers around the globe could transfer money in harmony, this is unfortunately not a reality at this time. In fact, it is in some cases a technical and logistical nightmare to try and get all countries to use the same system.

Language barriers, currency exchanges that fluctuate too much, and technology issues all play a part in making this a difficult thing to accomplish. Not all countries have the same solid banking system, and though English is generally accepted as a universal business language, there is no one currency that is accepted as an international business currency. Therefore, varying rates and the like make it more difficult to use only one system.

For these reasons, ACH is limited to the United States and Puerto Rico. This does not mean, however, that you can't accept payments from other countries. It just means that more than one system is going to be used in order to accomplish the transaction. This may cost a little more, or maybe not, depending on how your account is set up with the merchant who helps you process these electronic checks. You should also note that if an electronic payment is coming from overseas or another country, then there may be a longer wait time than the two to four days that was previously mentioned. This could take the same amount of time, just a few days more, or even several weeks more. Again, it all depends on technology, what country it's coming from and the currency exchange at the time.

Real-Time Electronic Check ACH
Much has been made of the general wait time of up to four days for an electronic check to clear. This still seems like too long for many people, so merchants have come up with real-time checking. This works similar to a credit card, meaning that when you process the check, it looks right away to see if there are sufficient funds in the account to cover the check. If there isn't, the check is declined, just like a credit card. Also like a credit card, it merely takes an authorization on the account. It doesn't actually charge for the check until the transaction is complete, which takes – you guessed it – two to four days, just like ACH.

The difference here is that the customer still has to show up in person and write you a traditional paper check. The check is then scanned through a check scanner like you are familiar with at your local retailers. The funds (if available) are then authorized and put on hold until the paper check clears in the traditional manner. The customer does not have access to these funds while on hold, but the check must be processed in order to finally charge the hold and claim the funds.

Summary
ACH electronic check processing is a very easy and non-traditional way to do an old-fashioned form of payment. Many people like this paperless form of paying for things without the hassle or finance charges of a credit card. It is very easy to start a merchant account with several companies who will process ACH payments for you. The cost to start up usually is not that much, though the fee per transaction could fluctuate depending on the plan and company you use and how frequently you make transactions.

Electronic checks can turn into bounced checks as easily as paper ones can. In this case, you can re-present the check and see if it goes through with available funds a second time. There is usually another fee to do this and it can get costly, so trying to secure a different form of payment is always a good idea.

ACH is a system used in the US and Puerto Rico, with other electronic systems used in different countries. You can still transact with other systems, though the fees and wait time for processing could increase.


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